Peneliti LM FEB UI AF Amru: Breathing Underwater: Revolution of MSME Bussinesses
Business Process Reengineering: Should We Ride The Tide?
Crisis and disaster cost companies their productivity and profitability. While risk managers can predict the incoming ‘tide’ from afar it doesn’t necessarily ensure the company’s survival when the disaster occurs. Crisis, such as the Asian financial crisis back in the late 90s had been predicted and warned by some experts. World Bank mentioned the signal of overheating economies of East Asia Countries and yet the impact of the crisis is still severe. It crushed Baht, Ringgit, and Rupiah in a considerably short period. The aftershock was traumatic as for some countries the recovery process took more than a decade. For companies that had prepared for the financial crisis, the damages are still significantly high since the severity and the period of crisis are simply disastrous.
Risk can be mitigated but can never be completely neglected. Given time, a crisis will happen and when it happens, the company preparedness is put to the test. There are viable methods of assessment and measurement of the possible damage of a certain type of crisis to a certain type of company. As the method may offer a solution in a form of estimation throughout severity that one type of company can withstand, it should be not taken as a sole and most definite solution to the company’s future survival. There is no universal type of preparation that a company can fully rely on since the value of every method is highly subjective to the company and its industrial characteristics. When it comes to risk and crisis, the risk score only concerns two things: the severity and the probability (likelihood). This perspective has been implemented for years in major companies. However, the period of crisis is not taken into account. It is not because it hasn’t been considered, but simply because it is almost impossible to predict with all the continuous and simultaneous interaction among the market entities. There is no guarantee to the company survival rate as there is no clear answer on how long the crisis should take place, the company should exercise the preparation with more flexible adjustments within the period of crisis. This flexibility in adjustment should also be prepared beforehand with further development in contingency plans whenever the signs given in the times of crisis are far from the company’s favor.
‘Riding the tide’ means the company should not bother making use of their umbrella when its function becomes insignificant. This analogy means that even the most sophisticated preparation cannot ensure the company’s survival when the impact is far too great to contain. Another case is when the impact is moderate but the period of crisis is highly uncertain. However, it does not imply a company’s effort in preparing the Business Continuity Planning (BCP) becoming less important, it only means the opposite. The company should be able to adjust itself to ride the tide which has the power to completely drown the whole company’s future and the company’s BCP must include the scenario where the BCP itself must be adaptive in times of crisis. Riding the tide means business process reengineering as it goes and in an instant.
Should We Hold The Breathe Longer or Learn to Breathe Underwater?
Business process reengineering seems scary for most companies and it should only be natural. The company under a period of disaster often faced with highly dilemmatic dichotomous options. The first choice, the company could wait a little longer with the assumption the crisis period comes to end before the company starts to take irreparable damages. As for the second choice, the company could stop trying to hold its breath any longer instead refocus its effort to learn to breathe underwater.
As simple as it might sound in this analogy, it is far from an easy decision to take. There are three major constraints to the company’s business reengineering process. The first and most profound one is company size. The size of the company in terms of asset and –especially– the number of employees1 should be the biggest concern when it comes to the company’s agility to reorient its focus and reengineer its business process. A complete involvement within the organization plays an important role in the company’s business reengineering success. The second and third constraints are the company’s ability to learn and the company’s existing bureaucracy.
The company’s ability to learn should be observed through the implementation of the latest technology available. Companies that are sitting too long within their comfort zone often reject the idea of using new ‘way-of-work’ despite its advantages and efficiencies. The same problem should be indirectly observable from the companies with an overcomplicated bureaucracy that has been used for decades without a thorough examination of its efficiency and effectiveness. The second and the third constraints are mostly found in the older and larger companies compared to those in the younger and smaller. Bureaucracy, especially the traditional ‘must-be-attached-with-a-physical-documents’ way should cost the company with a tremendous inefficiency. Most of these hardcopy documents are reports of work been done, some major corporations are still spending billions and more on printing and delivering these proofs of work. Ironically, the cost of proving the job has been done is higher than the cost of getting the job done. These problems with bureaucracy and the slow learning speed within a large organization are met with unjust tolerance to senior officers rather than provide the proper training for the employee to learn to work with digital documents format. Reporting should be easy and hassle-free one, if not automated.
The constraints are the consequence that comes from years of accumulation over the company’s system refinement without sufficient anticipation of circumstances where the system must adapt. The long-term refinement within the company’s system has made the system solidified in ways that the company’s fluency becomes a double-edged sword. The system boosts the company’s productivity in ‘normal’ times and slows it down in times of crisis. The company should also schedule a regular evaluation of the systems, some refinement in large companies tends to be resulting in more ‘restrictive’ way rather than ‘relaxing’ way that can encourage agility within the organization’s internal workflow. Larger companies have these tendencies of ‘playing safe’ that corresponds with its size –the larger, the safer.
The solution to the reengineering constraints problem for an older and larger company is an investment in a change management system that has a timeliness and an equivalent strength in altering the company’s focus and business process. The emerging problem from this solution is that the investment is perceived to be unnecessary and expensive regarding the small likelihood that a disaster with such austerity should topple the company’s stability. In normal times, such ‘trivial’ and ‘pessimistic’ investment could reduce the company’s efficiency and further its optimized ability to compete. The larger the company’s system and its complexity, the more expensive the countermeasure.
The younger and smaller company is not perceiving the same problem as dilemmatic as the older and larger company does. Since the smaller and younger companies usually keep their business process as practical as possible and any adaptation within its system should be as low as possible in terms of cost. The ability of the smaller and younger companies to adapt faster and cheaper should be optimized in the times of crisis.
For Micro, Small, and Medium-sized Enterprises (MSME) –and sometimes BIG companies as well–, there are three ways to increase the survival rate in times of peril.
- Holding Breath: The first and least extreme measure is to hold breath. Holding breath for MSME is to generate efficiency as soon as possible and limit the company’s risk appetite o where it should be considered prudent. This approach should reprioritize the company’s focus from revenue maximization to cost minimization.
- Breathing Underwater: The second way for MSMEs to increase their chances is to learn to breathe underwater. When the high tide of crisis drowned the economy and holding breath is no longer an option, MSMEs have less expensive substitution cost over their business process or ‘way-of-doing-things’. Reengineering the business process for the MSMEs might not only provide safety but also a competitive advantage compared to their larger relatives. For instance, in COVID-19 Pandemic many smaller hotels have their business process re-engineered to provide a 30-days-stay at a very cheap price while the groups of international five-star hotels are struggling with their maintenance cost and salary.
- Hibernate: The third and the most extreme way for MSMEs to be able to survive the crisis is to hibernate. This process of crystallization aims to reduce the operational cost to a minimum by the mean of shutting down the operation itself to stop the ‘bleeding’ as the business uncertainty increases. MSMEs that are taking this desperate measure are not completely expense-free since there are inevitable costs such as cost of capital, renting cost, assets maintenance cost, and other costs that cannot be reduced by being non-operational. However, this trick is highly risky – especially to those with assets with high maintenance. Companies that choose to stop being operational can erode expenses significantly but also loses their opportunity in making any profit.
Rapid Evolution: Survival of The Fittest
Crisis in the business world is a form of natural selection. Businesses that do not fit within the circumstances are doomed to fail. The larger the business, the harder it is to adapt. As previously discussed, the size of the company significantly affects the ‘mitigation price’ and makes the decision to properly mitigate the risk becomes somewhat dichotomously dilemmatic. The same dilemma occurs in times of crisis for the large companies where business refocusing and process reengineering bumped into the dilemmatic wait-and-see or taking-hard-turn. While the large company strives in the period of economic ‘normalcy’, the MSMEs are having more advantages within a period of higher uncertainty.
The challenge, however, lies within the company’s ability to implement a necessary rapid business evolution while trying to keep its critical success factor in the newly engineered business process and its strategic focus.